How to retire at 40

Retiring early can be rewarding if well planned. Here’s how to go about it

Up until recently, early retirement in India was synonymous with voluntary retirement schemes and/or gleeful half-truths explaining your decision to move out of your employer’s corporate playground to, presumably, build your own. A new breed of Indians, however, is rapidly changing that definition. Armed with meticulous gameplans and a deep desire to step away from the workforce for good, these individuals are proving that retiring early — sometimes almost two whole decades before the mandated 60 years of age — doesn’t have to be a pipeline dream, provided you understand what it takes, and are prepared to give it your all.

Three such readers, who walked away from the corporate rat race to usher in an early and planned retirement, dish out the details on what it takes.

Challenges vs rewards

While still in his 30s, Rishi Piparaiya was perched on a rung of the corporate hierarchy that many others could only aspire to. Having held prestigious positions with some of the country’s largest banking and insurance institutions, he was only one strategic move away from the CEO’s chair. And yet, he decided to give it up and walk away. “I had a few interesting offers on the table, but soon realised that, for me, reaching the top of the ladder was not worth all the sacrifices I would have to make,” says Piparaiya. “I had always nurtured a deep interest in writing and, rather than sell insurance for the rest of my career, I decided that the time was right to pursue my passion. It mattered to me that the legacy I left behind was in the creative and not the banking field. And I decided to do what it took to make this dream my reality.” Now 44, Piparaiya is the author of two books and spends most of his time on travel and writing. “Retiring early also gave me the opportunity to spend muchneeded time with my growing children and to be there for all the important life events that I would have otherwise missed, had I pursued a more conformist route,” he shares. Piparaiya relishes the flexibility of his current situation and the fact that he wakes up each morning to do what he loves. Romantic as it may seem, this decision was made after much thought and deliberation. Here are some of Piparaiya’s key takeaways.

Have a plan: “I’ve found that most people are held back from making this switch not by their financial or other quantitative considerations, but by not knowing what they’d do if not working at a full-time job. I always advise others seeking to follow my path to develop a passion, hobby or interest that they can fall back on, so that they have something productive to do,” says Piparaiya. That way, instead of grumbling about your job, you can actively work towards pursuing a real goal.

Test the waters: A year before Piparaiya actually took the plunge, he took an unpaid sabbatical from his company to explore the lifestyle he would soon be living. “I spent the time writing and travelling, and basically just figuring out if this lifestyle could work for me, and if I would be comfortable living it for the rest of my years,” he explains. If your organisation offers you any such alternatives, he thoroughly recommends you explore these before making your decision.

Set the right expectations: Financially, Piparaiya and his family are aware that his new lifestyle will not allow the family to acquire any new assets; new purchases will only be made to replace existing goods. While Piparaiya certainly does not recommend scrimping, he does advocate informing your spouse and family about the real-world implications of your decision, and bringing them on board.

Not for the status-conscious: The associated prestige of most conventional jobs will be a glaring absence once you decide to chart your own course, Piparaiya says. “In India, many people will not understand your decision. Also, in many social settings, you are as valuable as your last business card. The loss of this perceived stature may strike you hard if you are very status-conscious,” he says.

Minimise your liabilities: To optimise your financial stability, Piparaiya advocates not having any major liabilities such as home loan investments when you decide to pursue financial independence. Also, make sure to obtain major insurances such as health and life insurance when you are younger and healthier, he says, especially since quitting your job also means bidding farewell to any corporate covers.

Invest regularly: Even if you aren’t a seasoned pro, Piparaiya recommends investing regularly in a few standard mutual funds and SIPs. “Don’t wait to analyse the markets and don’t be too risky with your investments if you don’t have too much time to thoroughly investigate your choices,” he says.

Priority, not alternative

Having made considerable headway in the corporate sphere, 33-year-old Sugandha says she knew that as long as she worked hard, she would not find it difficult to earn a livelihood. What put her off her lucrative job at a Gurgaon startup, however, were the excessively-long and stressful working hours. Meeting her now-husband, Naren (last names withheld on request) in 2014, Sugandha knew she had found a kindred spirit. Naren had just returned after a stint in the US, where he had worked as an IT professional and also discovered an online movement called FIRE (Financial Independence, Retire Early). On his part, Naren was eager to give up the stress and insecurity of the current economic landscape and, instead, spend his time on community work. “We did the math and decided to take the plunge into a more fulfilling, liberating way of life,” says Sugandha. As a first step, Sugandha quit her job and moved into an apartment in Goa with Naren, who works on an internet-based entrepreneurial venture. “We decided to take it one step at a time and understand whether we could make this lifestyle work for us in the long term,” says Naren. Thus far, the couple has saved roughly a third of their retirement corpus, which will cover their daily expenses post retirement. The couple blogs about their experiences and the lessons learned on SavingHabit.com. Some of these include:

Budget your retirement corpus: A retirement corpus is essentially a safety net that will cover your living costs while giving you the freedom to follow your passion. One rule of thumb is to multiply your current annual expenses by 25 years. At four per cent returns via various asset classes, this should give you enough money to subsist, the couple explains. For example, if your annual expenses amount to Rs 12 lakh, your retirement corpus would be about Rs 3 crore. Four per cent of this amount translates into an annual expense budget of Rs 12 lakh. You can, like Sugandha and Naren, choose to keep adding to this corpus even after your retirement, to account for inflation and other contingencies.

Save early: The couple recommends saving at least 50 per cent of your income. Naren says: “If you save 25 per cent of your income, three years of savings will add up to a year of expenses. Conversely, saving 50 per cent means you will only have to work for a year to save the same amount.” Saving early also lets you enjoy sweet rewards at a later age. “If you save a crore by the time you are 40, and don’t touch this amount until you are 65, your corpus will grow to Rs 16 crore, assuming a 12 per cent CAGR. The additional Rs 15 crore is pure returns from compounding. Keeping this in perspective lets you plan your expenses and savings more wisely,” Sugandha says.

Prioritise right: “In India, most people already save 50 per cent of their income, albeit through wasteful means such as home loan EMIs. A 20-year home loan with an eight per cent EMI makes you pay almost the entire cost of the house as interest to the bank, which is a wasteful way to purchase a house. A more frugal manner, instead, would be to invest the money you’d be paying as interest as an SIP and become financially independent. With rental yields at three per cent and EMI at eight per cent, you can easily rent your way to buying a house, which is a far less wasteful and stressful route,” says Sugandha. The couple is also expecting their first child later this year and plans to adopt the same approach when it comes to meeting the child’s educational expenses. “While we are saving for our child’s education, we also recognise the importance of using the right financial tools at the right time. Numerous financial instruments such as loans and grants are available for education, the same isn’t the case for early retirement. Hence, while planning our allocation of our available funds, retiring early is our priority,” says Naren.

Don’t go overboard

Even as a boy, Dev Ashish recollects being fascinated by the concept of money working for him, rather than the other way around. “Twenty years ago, I was very excited to see dividend cheques flow into our mailbox and the entire concept of earning regular passive income without working for anyone else,” he shares. The seed was sown at that early age and there has been no looking back since. Now 33, the investment advisor who blogs at StableInvestor.com, and his wife Aditi, are aggressively pursuing their goal of financial independence, and have already saved up to 60 per cent of their income to build their retirement corpus. His tips towards realistically achieving this goal include:

Don’t deprive yourself: “Speaking from a mathematical context, FIRE is remarkably simple — the lower your expenses, the lower your retirement corpus. However, this does not mean that you should lead an unnecessarily frugal life in order to achieve your corpus quickly,” Ashish warns. To balance things out, the couple makes sure to spend on things they really enjoy, such as travel and the odd luxury item. This, they say, ensures that you do not get bogged down or impede the quality of life for those who are impacted by your decision.

Seek guidance where necessary: When calculating your corpus, investments or savings, Ashish advises seeking the expertise of an advisor or financial planner where necessary. “While thumb rules are a good starting point, you will need to customise your plan and crunch some numbers to find out what really works for you. You will also need to factor in other financial goals, such as your children’s education and marriage, and real estate purchases. Instead of getting overzealous with your plan, step back and seek guidance to make a truly informed decision,” he says.

Don’t wait to analyse the markets and don’t be too risky with your investments if you don’t have too much time to investigate your choices

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